Brough's writings on the technology, economic and social issues of communications at the intersection of the Internet, telecom and mobility.

December 19, 2013

Today is the 100th anniversary of the Kingsbury Commitment which effectively established AT&T, a.k.a. The Bell System, as a government sanctioned monopoly.

It was on December 19, 1913 that AT&T agreed to an out-of-court settlement of a US Government's anti-trust challenge. In return for the government agreeing not to pursue its case, AT&T agreed to sell its controlling interest in Western Union telegraph company, to allow independent telephone companies to interconnect with the AT&T network and to refrain from acquisitions the Interstate Commerce Commission did not approve.

This was part of AT&T president Theodore Vail's strategy to make telephony a public utility run by AT&T. It was AT&T Vice President Nathan Kingsbury who signed the letter to the US attorney general, but the strategy was that of Theodore Vail and the credit for resulting Bell System monopoly goes to him above all others.

The official monopoly was finally sanctioned and regulated in 1934 (after yet another round of anti-trust investigations) under the Communications Act of 1934 (which set up the Federal Communications Commission as the regulator), but by then the monopoly was complete. It's start was the Kingsbury Commitment exactly 100 years ago today.

While that monopoly was supposedly broken into seven pieces by the Bell System breakup of 1984, in fact none of these "Baby Bells" ever competed with each. After successive acquisitions, these seven local monopolies are now owned by either Verizon Communications or AT&T. And, despite promises of competition made to entice regulators into accepting various acquisition, none of these local exchange operations has any meaningful business outside of their original monopoly footprint. They were and are monopolies today. The only difference is the local telephone monopolies are less and less regulated today.

Yes, there is local competition today, but local competitors don't have access to the wire or fiber that the monopolies have installed, at rate payer expense and with preferential access to the rights of way. This means companies like netBlazr are reduced to using wireless links for most of our connections.

July 27, 2012

To get access to content behind the WSJ paywall, go to Google News, type in the headline (Google Ramps Up Challenge to Cable) and then follow the Google News link.

Of course it's a short quote that only captures part of what I had discussed. My point in the phone interview with Amir Efrati (at the wsj) was that Google's KC fiber project is:

a great political statement, showing what the duopoly could be delivering (if it weren't a monopoly or duopoly) and

a great platform for Google to experiment with TV boxes, TV content licensing issues and consumer access services in general,

but it is not disruptive.

Because of the legal and regulatory structure of US access markets, we are stuck with one or a very few (usually 2) vertically integrated services. And even Google can't change that.

Until we get structural separation between the natural monopoly physical layer (dark fiber) and the potentially competitive upper layers, we will be stuck with a cable service provider monopoly or duopoly. Google's announcement of a vertically-integrated, cable TV-like set of services just proves this point.

August 24, 2010

Winning would mean giving up much more important rights – historical rights that were in place in the US as recently as 1995 and remain in place in most of Europe even today.

We shouldn’t settle for network neutrality. It’s a poor substitute for what we had and much less than what we need. Let me explain.
There are two topics to discuss. The first is “common carriage,” a centuries old legal concept that applied to the US telecom industry throughout most of the 20th century. The second involves communications protocols. Both topics are complex, so I will cover only what’s needed to understand why we shouldn’t accept network neutrality and why, at a minimum, we should fight for enforcement of existing common carriage rules.

Network neutrality is about allowing any Internet application to run over an Internet connection, i.e. over a connection that uses Internet Protocol (IP). But under common carriage as it applied prior to the late 1990s, we had a more powerful right – the right to run any kind of network protocol, IP or otherwise, over a lower, simpler service which today we call a “bit stream*.” Why does this matter? Because real innovation is also possible at these lower layers and that innovation continues to be important. But today, such lower layer innovation is restricted to inside one building or one campus. Yes, we can tunnel some lower level innovations over IP, but not all of them and only at a cost.

IP telephony (VoIP) is one place where problems arise. Most enterprises use IP PBXs internally, yet calls between enterprises use the PSTN. Many companies have attempted to address this gap, but progress is slow and expensive. Within an enterprise, IP telephony packets are given priority, but that priority is not supported on Internet access links and network neutrality doesn’t help. As a result, to interconnect VoIP calls, enterprises must lease separate dedicated access circuits – circuits usually based on bit stream access – to support “SIP trunks.” Up until the late 1990s, these circuits were regulated under common carriage. Today they are an unregulated monopoly, with prices derived from the cost of voice circuits 15-20 years ago, i.e. abnormally expensive for today.

Common carriage is the legal concept that, in exchange for government granted monopoly access to rights-of-way, the monopolist must carry anyone’s traffic over the resulting infrastructure, at regulated rates. For centuries this has applied, to canals, to roads, to railroads, to telegraph lines and, until nearly the end of the 20th century, to telecommunications lines. But during the legal battles after the Telecom Act of 1996, the FCC basically gave up on common carriage.

If we accept Network Neutrality instead of common carriage, we guarantee future innovations happen only above the IP layer. Innovation at lower layers will be restricted to enterprise or campus applications. That’s too bad as it was the existence of common carriage that allowed the Internet to develop in the first place. Do we want to eliminate that kind of innovation in the future?

If anything, we should be fighting to extend the ideas of common carriage to lower layers, e.g. dark fiber. Installing dark fiber is expensive and requires access to rights-of-way that are limited. The installed fiber is capital expensive infrastructure that lasts for decades. Such conditions justify granting monopoly access, in exchange for common carriage and regulated rates of return. But when you light up a dark fiber, you use (relatively) low cost gear with a short life (even if it can survive for ten years, Moore’s Law renders it functionally obsolete within 2-3 years). What's more, there’s rapid innovation in opto-electronics gear. Just look at the order of magnitude difference in cost between enterprise and carrier fiber-optic gear.

Today, the US is loosing leadership in all things Internet. Network Neutrality will just put a nail in our coffin. To stop our decline, fight for restoration of the common carriage principals that existed through most of the 20th century and still exist in law. To regain world leadership, fight to extent those principals to include access to dark fiber at regulated rates.

* Bit stream access. In the 20th century two regulated services provided what the 21st century calls bit stream access. These were voice telephony and T1 circuits. T1 circuits directly carry a stream of digital bits. Modems allowed voice connections to carry digital bits, for example, for bulletin board services and other purposes long before the Internet became popular.

September 24, 2009

At Spring eComm 2009 in California in March, I gave a presentation entitled: Structural Bypass - A Simple, Proven Path to "Real Broadband" that dealt with policy approaches for first mile fiber deployments. The video has just been posted here. Unfortunately, this is my face and the audio with my words. The slides are not shown in the video, instead you have to look at the slides here.

My arguments focused on urban areas only, as the economics are different between urban, suburban and rural deployments. You can't just lump together all areas in a country and draw reasonable conclusions. Also, the only data I have is for urban areas. And, as a simplification for this talk (I only had 15 minutes including Q&A), my metric of success was the consumer price for 100 Mbps symmetric Internet connectivity.

My points were:

Structural separation produces better results than other approaches.

Separation between dark fiber and everything else is more effective than separations at higher layers.

There is a political path, which I call Structural Bypass, which has been used at least once (in Stockholm), to effectively achieve structural separation without explicitly fighting that battle.

If you are interested, I suggest you open the video in one browser tab merely for the purpose of listening to the audio. Then view the slides in another browser tab. The audio is of some interest, but my facial expressions are of questionable value.

September 23, 2009

Aparna Ray, writing at Global Voices, provides an excellent set of references on the economic benefits of acquiring a mobile phone. Most of the articles she points to appear in the mainstream press and most provide stories and anecdotes about economic benefits, so they are much more readable than the dry economics papers I typically reference, e.g. here, here, here or here.

While Aparna and I have both focused on the economic benefits of acquiring a mobile phone, it's interesting to note that economic benefits come second in the minds of those at the bottom of the pyramid (BOP), when they think about getting a phone. This classic study by LIRNEasia shows:

- At the BOP, convenience, in terms of anytime accessibility, is the
biggest driver in the purchase of both fixed and mobile phones.

- BOP users make an average of one call per day, mostly local, mostly 2-3 minutes long, mostly to stay in touch with family and friends.

Reading the text in detail, the idea comes across that phones provide a sense of safety, i.e. it's easier to find family members in an emergency, as well as comfort and connection. Indeed, in all the studies, economic benefits are real but are secondary to why people want to acquire mobile phones.

July 17, 2009

Yesterday, Apple blocked Palm Pre smart phones from accessing iTunes. The Pre smart phone has been able to access Apple's on-line music store since it went on sale in early June, but apparently Palm didn't have a formal deal with Apple. This is bad for Palm, and for Pre users, but it's also bad for Apple. Apple is holding onto their integrated solution just when the market is about split into segments, and explode!

But of course this is not the first time Apple has been in a leadership position and lost it.

In 1980, Apple controlled 50% of the emerging PC market and had dominate mind share. Over the next 15 years they became a niche player, not because IBM entered the market, but because they clung to an integrated solution while the exploding market split into segments (chips, PC chassis, peripherals, operating systems, applications and more) with different players in each segment.

Today, Apple has dominate mind share and significant market share in on-line music with iTunes and the iPod devices, and in smart phones with the iPhone and the iPhone application store. Apple has captured the hearts and minds of people around the globe and gotten real money from at least tens of millions of wallets. A big reason for their success has been Apple's complete integrated solution that provides a seamless experience. There is no doubt the iPhone is the best device for mobile Internet access and, in part, that's because Apple controls everything about the user interface (even while opening application programming to hundreds of thousands of 3rd parties).

But the market is just beginning. Our mobile devices are where PCs were in 1980. As this market explodes, it's going to break into segments, with specialists in each segment. Already, a half-dozen application stores have been announced, each hoping to trump the iPhone application store. MP3 players abound, particularly in Asia. Indeed, most youth in Asia do not have smart phones (iPhone or otherwise) and their music players do not come from Apple.

Apple could leverage their leadership in iTunes, iPods and the iPhone to define the future market segments and dominate at least one segment. Indeed, with internal functional separation (separate profit and loss units), they might aspire to dominate two or three segments. But if they stick to the integrated solution which won them their fame, they will repeat what they did with their 1980 PC leadership ― fritter it away and end up a niche player once again.

June 23, 2009

On more than one occasion, "natural monopoly" arguments have been used to obtain, and/or hold onto, a government granted monopoly, This is definitely true of access networks where the physical right-of-way to any specific real estate parcel is a limited resource, but the economics of what you put in it have changed over time. At one time it made sense to consider telephone service a natural monopoly. And for most of the twentieth century, telephone service was operated that way (think Bell System in the US and government run PTTs in most of the rest of the world). In the latter 20th century, cable TV became a second such monopoly. Today, it's increasingly clear that telephony and television are higher layer services, not inherently tied to the access network. Yet our laws and regulation have barely evolved ― each access network is still regulated as a different vertically integrated monopoly. And, managers in each business focus on preserving their historic monopoly even as market forces or government regulations force them to also offer Internet access.

So it's interesting to see solid economic analysis showing that access network shareholders would make more money if management was willing to open up their access networks, i.e. become "dumb pipes."

The first such argument I encountered was by Craig Moffett and Amelia Wong of Bernstein Research who wrote an interesting paper The Dumb Pipe Paradox, early in 2006. The original paper is not on line but I have some quotes here and there are some other comments here. Craig and Amelia were looking at Cable TV's hybrid fiber-coax networks and concluded that cable companies could make more return on investment if they were in the pure dumb pipes business.

Now Benoît has written a detailed report describing his findings. Although the report is for Yankee Group subscribers only, Benoît is also giving a webinar on the subject next Tuesday and that's open to all. Register here.

I particularly liked the polite suggestion near the end of Benoît's report:

Recommendations for Incumbents• Re-examine your economic fundamentals in light of the FTTH business model. It’s irrational to cling to antiquated business practices if new approaches, no matter how disruptive, deliver better shareholder value.

As expected, Google peers with as many relevant ISPs as possible. For the ISP, peering with Google eliminates their upstream costs for traffic to Google. Since Google represents a substantial volume of traffic for most ISPs, this is a big saving. As of May 2008, Google was present in 33 public Internet exchanges around the globe, so major ISPs already have connections in places where they can peer with Google. The minimum qualifications are 5 Mbps of Google traffic and the ability to interconnect using Gigabit Ethernet at one of these 33 major Internet exchange points.

Google Global Cache

What's interesting is Google's caching strategy. Just as Akamai puts servers in ISP's local facilities, Google is providing a distributed cache for their content. This available to larger ISPs and allows them to serve Google content directly at the edge of their networks, thus reducing traffic on the ISP's backbone network. Here's a representative rack that Google provides to the ISP.

April 15, 2009

Aswidelyreported, Credit Suisse analysts have estimated Google's YouTube may lose $470M in 2009 and more in the future. However, their estimates say Google will pay $360M for bandwidth in 2009. I don't know how Google figures their cost of bandwidth, but anyone who understands anything about Internet transit/peering knows Credit is way off base.

Google does not pay for Internet Transit the way most tier 2/3 ISPs or most content providers must. The economics are simple. If you are a Tier 2 ISP, you have to purchase Internet Transit services from a Tier 1 network to handle that customer traffic which goes off your network and for which you cannot make other arrangements. The most notable 'other arrangement' is peering. If you have significant traffic to/from another specific network, you and the other network can both save Internet Transit costs by exchanging traffic locally, i.e. peering. Of course an enormous amount of your traffic is directed to Google. If you have a presence in any data center where Google has a presence, you would love to peer with Google, as that saves an enormous amount on your payments for upstream Internet Transit.

A similar effect plays out among Tier 1 providers. If one tier 1 network cuts a special deal with Google, Google routes all their traffic through this provider and suddenly the other tier 1 networks have large asymmetries in their tier 1 peering arrangements. Either they also cut deals with Google or they have to renegotiate their tier 1 peering arrangements to pay for the traffic asymmetry (something that's highly unlikely!). Google is the one with leverage here!

I don't know what, if anything, Google pays for bandwidth, but it's not paying $360M for Internet transit. Sorry Credit Suisse, you better go back to analyzing derivatives, credit swaps and other purely financial plays.

Google does have costs. They have data centers in many parts of the world and they have a private fiber backbone that interconnects their sites and connects their private network to many, many potential peering points. Operating their private backbone is a real cost to them and I haven't examined their financial reports to see if there is any way (from public data) of estimating their costs for this private network.

But until someone does this analysis, forget what you've read from Credit Suisse.

He points out that receiving a return on the substantial capital investments that a fiber to the home (FTTH) project requires is much more dependent on takeup rates than on the average revenue per user.

Single player large scale deployments usually achive only 20%-25% initial adoption after which growth is exceedly slow. On the other hand, systems which are open to competitors, i.e. with viable wholesale services, attract many more players who market, sell and deliver new services thus dramatically increasing adoption and accelerating the wholesaler's return on investment.

In short, obtaining a regulatory holiday so you can run your new fiber network as a monopoly is actually bad for your shareholders!

Benoît's speech was filmed. For the full presentation (in four segments of < 10 minutes each on YouTube) see Benoît's post.

If you want just the essence, listen to the first three minutes of this:

Here is an enlarged version of the chart that Benoît is using while he speaks:

August 28, 2008

Recently I can by some interesting data on monthly voice and SMS usage in Denmark. But first let me set the stage. It's well known that people are price sensitive ― as per minute prices fall, telephony usage goes up. It's also true that people prefer flat rate pricing as it reduces their mental transaction costs. This graph (from Andrew Odlyzko) shows what happened to mobile minutes of use when flat rates were introduced in the US.AT&T launched their Digital One-Rate plan in 1998 offering a block of minutes for one monthly fee with no long distance or roaming complications. This plan was so popular that all operators were forced to respond, with the results visible in the graph above.

Today US mobile voice usage is approaching 800 minutes per month and that's average. Leap Wireless and MetroPCS subscribers use 1500-2000 minutes per month. One wonders how much time people can spend on the phone...

So here's the new (to me) data from Denmark.The Danish regulator has a wonderful set of statistics available in half-year increments. Those above are from 2H02 thru 2H07. Voice minutes are out-going traffic in millions of minutes per period (6 months). The population of Denmark is 5.5 million (82% are over the age of 14) so this represents ~330 voice minutes and ~225 messages per person per month.

Wireless minutes of use continue to rise, but fixed line minutes are falling faster so total voice minutes are falling. But total person-to-person communications is still increasing because SMS and E-Mail usage has soared, growing to roughly 40% of all communications.

This is very interesting as flat rate pricing for monthly bundles of SMS messages was introduced in Denmark in 2002. Meanwhile, Danish mobile voice calls are mostly charged per minute (very typical in Europe) and are expensive compared to the US.

So price matters, but flat rate monthly bundles (rather than per minute or per message charges) is even more important in driving usage.

May 25, 2008

This afternoon, I was in a local shopping area and noticed a new storefront advertising Verizon FiOS service. I've been a FiOS subscriber for two years now, but I'd never seen a FiOS storefront. Unfortunately, the store wasn't open.

There was a T-Mobile store 50 feet away and a Verizon Wireless store two blocks away. They were both open, as was an AT&T store about a half mile away. The Verizon Wireless store hours were typical of all the mobile phone stores, i.e. M-F 10am-8pm Sat 9am-8pm Sun 10am-6pm

Indeed, these hours are typical of retail stores in the neighborhood. Weekday openings are at 9:30am or 10am and closing times are 8pm or 9pm. And all retail stores are open at least a half day on Sunday.

The Verizon FiOS store hours: M-F 9am-6pm Sat 9am-1pm Sun closed

I remember when retail stores were closed on Sundays. It was a long time ago. I even remember, as a child, when some neighborhood stores were only open a half day on Saturday. That was a very long time ago.

Apparently the FiOS store was opened because Verizon is now competing with Comcast for TV subscribers in our neighborhood. Comcast is another long term monopolist, so it was interesting to drive (about a mile) to ther retail storefront. It was also closed on Sunday. In fact their only store hours were M-F 9-5. Wow!

I suppose two sources of wired TV services is better than one, but this is another case where it's clear a duopoly provides very little competition (for example, compared to our mobile market with 6+ players).

May 06, 2008

This is a very good week for the mobile Internet in the US. Our best prospect for open mobile Internet access is not legislation or regulation, but having four or more competing networks that are technically able to offer mobile broadband access.

We have three such networks today — Verizon, AT&T and Sprint — but three is not enough to break the walled garden mentality. What's changed?

1. T-Mobile USA has launched their first 3G service using the spectrum they won in the 2006 AWS auctions. For now, it's only New York City, but Reuters reports that T-Mobile plans to launch in 20 to 25 new markets by the end of the year and T-Mobile's stated intention is a full national HSPA network. In 2009, this will be our fourth national 3G network fully capable of multi-Mbps down and multi-hundreds Kbps up.

2. Clearwire has cut a deal to take over Sprints WiMAX network. As the Wall Street reports (subscription required) today:

Sprint Nextel and Clearwire are close to announcing a $12 billion joint venture that plans to roll out ultra-fast wireless Internet access for cellphones and laptops in coming years, with the backing of an unlikely alliance of technology and cable companies.
Sprint has agreed to merge its wireless broadband unit with Clearwire, a Kirkland, Wash., firm founded by cellphone pioneer Craig McCaw. The new company has raised a total of $3.2 billion in outside financing from several heavyweights -- $1.05 billion from cable provider Comcast, $1 billion from Intel, $550 million from Time Warner Cable and $500 million from Internet giant Google. Smaller cable provider Bright House contributed $100 million. The investments value the new company at more than $12 billion.

This also reduces Sprint's financial exposure and hopefully reduces the likelihood they will be taken over or their network consolidated, at least in the short term. I've been negative on the prospects for WiMAX in the past, but if anyone can make this go, Craig McCaw is good bet. So Clearwire represents our fifth national network capable of delivering mobile broadband Internet access.

Assuming all this holds together, we will see affordable flat rate open mobile Internet access in the US by 2010.

The good news — it’s full of interesting cost estimates and
projected subscriber take rates based on specific demographics in Pittsburgh,
Minneapolis and Philadelphia. The paper also examines a range of business
models, in detail, from complete monopoly to structural separation
(wholesale–retail) to let-the-market-take-care-of-it.

The bad news — all of the models turn out to be extremely
sensitive to revenue assumptions, i.e. to the estimates of subscriber adoption
and willingness to pay.

The flaws in this study

All of the models compute a net present value based on five years of stable
operations, but there is no mention of technology evolution or adoption rates of
competing broadband services, i.e. cable and telco (DSL or FiOS) services since
this is a US study. Technology is evolving at a great rate. You can’t bet on
stability.

During the past five years we saw WiFi go from 11 Mbps to widely deployed 54
Mbps systems and bleeding edge (pre-standard 802.11n gear) systems doing well
over 100 Mbps. The last five years also saw costs decline to the point where
we see widespread deployment of WiFi by individual consumers, a significant
percentage of which are running open WiFi hotspots.

On a recent drive through three different neighborhoods in Portland Maine, I
was interested in looking up real estate information on the web. On each of a
half dozen occasions, I was able to find a open WiFi hotspot within one city
block of deciding I wanted to connect. In January, I was in north New Hampshire
and spent two nights at small motel (not part of any chain) in Littleton, NH.
They had no Internet on offer, but a quick check for WiFi signals revealed two
within range of our room. If you don’t like my anecdotal information, look at
the WiFi hotspots that have been mapped by Navizon. It’s very different than five years
ago.

No matter how much it simplifies the analysis, you can’t bet on
stability.

What might happen with WiFi in the next five years? The latest WiFi
specifications add multiple input, multiple output (MIMO) support,
additional modulations and other goodies. As low cost WiFi routers incorporate
these advances we’ll see speeds go over 300 Mbps, but more importantly MIMO
technology increases both range and directionality. This means overlapping
systems work better (despite their overlap) and the signals from isolated
systems reach further.

If you’re worried today’s open systems will be locked down, then spend your
time thinking about schemes like FON which offer more secure ways
for consumers to share WiFi bandwidth.

If you’re worried consumer solutions won’t reach the inner city, perhaps
someone needs to relook at where WiFi has already been deployed, and then
forecast what might happen over the next five years, given the cost of a basic PC is approaching that of a television and the Cable
and Telco duopolists both push triple play bundles.

April 09, 2008

Today's New York Times includes an article by John Markoff entitled "Study Gives High Marks to US Internet." But either John Markoff is fuzzy about exactly what the Internet is or he didn't actually read the report. His title is way off base. He did interview a few people who are quoted in the latter part of the article, so there is some information in the article. But he's done a major disservice for the many who read only the title or perhaps first paragraph.

This is a report on information technology not specifically on the Internet (just look at the title). The researchers measured 68 different attributes of information technology, only a few of which directly pertain to the Internet, e.g.

Attribute

US Rank

Internet users (per 100 pop.)

7

Internet access in schools

12

Broadband Internet subscribers

17

Internet bandwidth

19

To his credit, the first section of the report is about "network readiness" and the US is ranked #4, however the study's definition of network readiness includes all sorts of features of the broad business environment, regulatory aspects and computing infrastructure.

Prior to this, I remember John Markoff only for the book Takedown, which I enjoyed.reading even though my sympathies were with Kevin Mitnick. :-) So this article is a major disappointment.

The US is another story. The only significant US deployment is Clearwire's with roughly 400K subscribers, but on a mostly
“pre-WiMax” network. Again, the application is fixed wireless Internet
access.

It’s one thing to use fixed WiMAX to provide Internet access in
Pakistan. It’s another thing to compete for fixed access in the US. Yes, our telephone & cable duopoly is moving slowly, but
they are going after all the more profitable neighborhoods with broadband offerings substantially faster than what fixed WiMAX provides.

What about mobile WiMAX? Mobile WiMAX is
in trials today, using technology and providing performance that the 3GSM
community will only see 2–3 years from now. Sprint clearly hopes to use WiMAX as a springboard past its competitors and past concerns about its declining user base. Presumably, in the longer term, they hope to converge
their dissimilar networks (Sprint EVDO and Nextel iDEN) on mobile WiMAX. But can mobile WiMAX build a large enough market soon enough?

Volume
drives down cost and cost advantages win in the end — witness Verizon’s
announcement that they are jumping ship on Qualcomm’s CDMA evolution in favor
of the 3GSM community’s long term evolution (LTE). Today, GSM networks
(GSM/ EDGE/ W-CDMA/ HSPA) have 80% of the world mobile phone market with billions of subscribers and a billion or so handsets manufactured each
year. Right now the entire Sprint-Nextel customer base is ~54 million subscribers.
Perhaps emerging markets will also adopt mobile WiMAX, thus driving up volumes?
Unfortunately emerging markets are even more price sensitive with the high
volume application being basic voice telephony plus SMS. GSM is the lowest cost solution
by a wide margin.

I hope I'm wrong. I hope mobile WiMAX's performance lead (over LTE) is enough to carry the day. And, in particular, as I’ve written before, I would very much like to see Sprint succeed, with or without Clearwire, because their WiMAX network would represent yet another source of wireless Internet access. With four of more networks
capable of mobile broadband Internet access, competitive pressures alone should give us what the FCC is currently ignoring, i.e. mobile data plans that are both open and reasonably priced.

March 17, 2008

I'm listening to the first session in the VON pre-conference workshop on Competition Policy and getting increasingly depressed. Everyone on the panel is entrenched in traditional policy infrastructure — no thinking out of the box here. What's more, at least two of the five people on stage seem to think the US is doing well, among OECD countries, with our deployment of fixed line broadband access.

The problem is definitional. They are comparing broadband penetration rates. I am comparing the relative performance of readily available broadband services.

The FCC's defines "broadband" as at least 200 Kbps in at least one direction. The OECD uses 256 Kbps, while the ITU definition is “transmission capacity that is faster than primary rate Integrated Services Digital Network (ISDN) at 1.5 or 2.0 Megabits per second (Mbits).” Using the OECD's definition, the US comes in 15th for broadband penetration by country.

But that's not the point!

Speeds of available broadband services

In Stockholm, dark fiber reach to every city block and an enormous number of buildings. This dark fiber is available for lease by anyone. As a result, there are many ISPs offerring services in greater Stockholm (and elsewhere in Sweden). Just about anyone in Stockholm can get 100 Mbps symmetric Internet connectivity for 98 Kroners pe rmonth — that's $16 per month.

Similar service (100 Mbps) in Tokyo costs ~$26 per month and in Seoul it was closer to $30 the last time I checked with friends there.

In the Boston suburbs I have Verizon FiOS Internet access. Downstream capacity is 20 Mbps most of the time and upstream measures out at 2.7 Mbps. This costs $50/month. I'm extremely fortunately to be able to get service this fast.

So my friends in suburban Stockholm have 5 time the downstream capacity and 30 times the upstream capacity for 1/3rd the cost.

Long time readers may recall my post about Robert Jensen's 2006 study of the advent of cellphones in the Indian state of Kerala and the positive impact they had on fish markets. Aker's study doesn't have the beautiful graphs that Jensen provided, but the quantitative results are similar.

Due partly to costly information, price dispersion across markets is common in developed and developing countries. Between 2001 and 2006, cell phone service was phased in throughout Niger, providing an alternative and cheaper search technology to grain traders and other market actors. ...we use a unique market and trader dataset from Niger that combines data on prices, transport costs, rainfall and grain production with cell phone access and trader behavior.

The results provide evidence that cell phones reduce grain price dispersion across markets by a minimum of 6.4 percent and reduce intra-annual price variation by 10 percent. Cell phones have a greater impact on price dispersion for market pairs that are farther away, and for those with lower road quality. This effect becomes larger as a higher percentage of markets have cell phone coverage.

Niger is a landlocked country in western Africa. It's extremely poor and most of the population are subsistence farmers. Among the interesting conclusions of this study is the introduction of cellphones produced the equivalent of a 3% to 8% decrease in the price of grain together with an increase in grain traders income.

Particularly notable was the largest differential (8%) occurred during a food crisis in 2005 when people with access to cell phones fared better than those without.

February 12, 2008

Two years ago, Robert Jensen presented work he had done on the economic benefits of mobile phone adoption among fishermen of the Kerala state in India. Jensen showed that mobile phone adoption reduced price volatility in the fish markets and was able to show quantitative benefits for fishermen and for the fish consuming public in Kerala. This blog post has a summary, some graphs and the pointers to his initial presentation.

Now there's new data from Kerala on the transition that occurred with the advent of mobile phone service. In Volume 4, Issue 1 (Fall 2007 ) of Information Technologies and International Development, Reuben Abraham reports (PDF, registration required) the results of a series of focus groups conducted at 12 locations in Kerala India and interviews with nearly 200 local people associated with the fishing industry. Using this data, he provides a good view of the fishing supply chain in Kerala, details on what happened when mobile phone service became available, and a nice summary of the implications for policy makers:

This article has provided an example of the value of communications technology, especially mobile phones, in making markets work more efficiently. This research also firmly establishes the role of ICTs in rural markets as one that reduces transactions costs. Investments made with the aim of reducing transactions costs are more likely to succeed than amorphous, ill-defined attempts to bridge the “digital divide.”

What I found interesting was the complexity of the fishing supply chain with separation between fisherman, boat owners, fishing cooperatives, brokers/commission agents and wholesale and retail fish merchants. Apparently the economic benefits measured so far have come with little change in this complex supply chain. However, Abraham notes:

... the power the middleman holds over the fishermen due to the monopoly on price information has lessened somewhat. The free flow of information ensures the fishermen get the opportunity to drive a harder bargain than before.

It will be interesting to see what changes happen over the next 5-10 years as ownership of capital assets (like boats) evolves and the market adapts to the new flow of information. I'll bet that, increasingly, middlemen will be cut out and consumers will see even lower prices.

February 10, 2008

Over the years I've uncovered a number of serious studies of the social and economic impact of mobile phone adoption in emerging markets. In fact, my list of links (embedded in various blog posts: 1, 2, 3, 4, 5, 6, 7, 8) has become a reference for several people, for example here. I've been somewhat less organized regarding the social and economic impact of Internet access, but I've resolved to track such references as well.

What struck me in this study was the parallels between the social and economic benefits they found and those conventionally associated with the adoption of mobile phones.

Based on our study, the most important social benefits are:• Internet enables people to keep their network and enlarge it by communicating with friends, family and others• Internet enlarges the world of people in rural areas by giving access to information• Internet brings knowledge and supports education

The most important economic benefits are:• Reduction of commute time • Saving money in a lot of different ways, such as only traveling to pick up something when you know it is actually there instead of having to return multiple times• Bringing new opportunities and using them, such as learning new farming methods or opening an internet café to make a living.

Most studies of mobile phone adoption in emerging markets, especially amongst the poor, show that social reasons - communicating with friends and family - come first, economic advantages come second. And among both social and economic advantages, the ability to eliminate journeys, i.e. save time by not having to walk to the next village to ask a question, is extremely important.

I suppose I shouldn't be surprised. At root, they are both communications technologies and our use of such technologies is driven by basic human needs that are remarkably similar, for everyone, everywhere.

The primary problem ISP's complain about is that 5% of their customers use 90% of the available bandwidth and when they examine this traffic, it's mostly peer-to-peer file sharing. A reasonable question is how to allow as much of this traffic as possible without increasing an ISP's variable costs or slowing down their other users.

This may not be as difficult as it appears. Indeed if Internet access was as competitive as mobile telephony,
we might already have seen what I'm about to propose — a combination of bundled pricing equivalent to
mobile's "free nights and weekends" and "free on-net calls" with a way
to facilitate P2P traffic that leverages exactly these "free" periods.

An ISP's costs

ISPs have some costs which are relatively fixed and others that are tied to usage. A network is a relatively fixed cost and when it's not full, the incremental cost of adding traffic is zero! This is the reason mobile operators give away free nights and weekend. They've built their mobile network for the peak daytime traffic, so it costs them nothing to run promotions that add incremental traffic at off hours. Peak hours and off hours may be different for an ISP, but the concept is the same. When a data pipe is lightly loaded the ISP's cost of adding incremental traffic is zero.

On the other hand, some ISP costs are usage based, for example "IP Transit" or more properly, Internet Transit. This is the ISP's upstream cost to send and receive traffic to/from the rest of the Internet. However, even here, usage-based costs occur at heavy usage. Light usage periods don't save money. To understand what's happening, it's worth a digression on Internet Transit.

Internet Transit

Internet access is monopoly or duopoly or a heavily regulated industry. The middle mile connections from the local network to the Internet backbone may or may not be competitive depending on where you are. But the Internet backbone itself is extremely competitive. If you can get to a major Internet Exchange Point in the US or Europe, there are many providers offering extremely competitive rates for Internet Transit. Typically these services are priced on a megabit per second per month basis (Mbit/s/Month) with lower rates for higher volume commitments. The other key idea is that charges are based on the 95th percentile of all the five minute data rate samples taken during the month. So an ISP can have a few bursts above their typical rate, as long as they represent less than 5% of the sampled intervals.

But this also means there is no extra cost to run at or near the typical rate at all times.

Local traffic

Even more important, if file sharing is done with other computers on the same ISP's network, then there is no need to pay for Internet Transit at all. The question is how to figure out which potential peers are "on-net" and which are "off-net."

Sending signals to P2P software

Most P2P file sharing software has relatively little knowledge of locality. Some P2P software practices "prefix awareness," for example, Joost gives preference to peers in the same /24 IP address block when they are available. But if a major operator provided an automatic way for P2P client software to determine whether a prospective peer's IP address was currently reachable "for free", it seems likely the file sharing community would leap on it, and if there's money to be saved, active file sharers would download the new clients immediately.

A standard way to present such information might be via an extension to the XML-based response codes in one of the whois information exchange proposals, e.g. from ICANN or from APNIC. Also, while what I'm proposing might start as a pricing plan rather like a mobile operator's "free nights and weekends" and "free on-net calling," it's not hard to see extensions where an ISP could offer dynamic access to underused capacity to those programs that were prepared regularly interrogate an ISP's server and use just the advertised off-hours capacity.

In closing

People liked fixed price deals. Unlimited is great, but there's plenty of experience with bundles of minutes and the idea of data bundles has already showed up in 3G mobile data plans. The combination of several tiered data bundle prices with the availability of "free" connectivity for "on-net" peers and during off peak intervals is likely to appeal to file sharers and produce better results for both the sponsoring ISPs and file sharers alike.

November 24, 2007

Last year Celtel launched a multinational mobile phone service for Celtel subscribers in Kenya, Tanzania, and Uganda under the name One Network which

"allows customers to move freely across geographic borders without roaming call surcharges and without having to pay to receive incoming calls."

Now I see they've extended the service to include twelve countries. This is very good news, as there are many tribal and cultural groups in Africa that span national borders.

So it's encouraging to see Africa following a path that should lead to roaming competition and long term consumer benefit. To understand what's at stake here, let me refer to an excellent paper by Scott Marcus on Europe's "New regulatory framework" which compares the US & EU regulatory approaches to roaming.

"In
2000, Vodafone Airtouch merged with Mannesman. <EU> Commission
competition authorities were concerned that the merged firm would be
the only entity able to offer pan-European mobile telecommunication
services... <under pressure the> merging parties resolved competition concerns by
agreeing to provide roaming tariffs to affiliated and unaffiliated
mobile operators on a nondiscriminatory basis. As a practical matter,
this eliminated the merged entity's incentives to offer pan-European
service packages..."

Scott compares this with the
US where AT&T Wireless's introduction of Digital One Rate service
led to a wave of mergers, alliances and joint ventures as competitors
were forced to respond. Because of that competition, US mobile subscribers now get large
buckets of low cost minutes for which there are no long distance
and no roaming charges. As a result, US average
minutes-per-subscriber-per-month is four times that of Europe.

Both the US and the EU have well intentioned regulator's, but as far as I know, neither can claim credit for understanding what they were doing or not doing. Luckily in Africa, there doesn't appear to be an African regulator with any interest in pan-African roaming, so hopefully African roaming will follow the path of competition. The initial signs are positive.

Most of my information and focus has been on markets in Asia and Africa, so I
was please when Paula sent back pointers to comparable studies on mobile
telephony in Latin America. From Paula’s first email:

Until our discussion, we considered telecommunications and more specifically
mobile communications on fifth place or even further down in terms of human
priorities, after food and shelter, transportation, energy, and education. What
all these studies have shown is that telecommunication has multiple impacts
affecting the whole dynamics of people's lives, which is different from the
other categories.

I did a quick research for South America revealing the same findings. In
particular, I was impressed by the finding that the "advantages offered by
mobile and its inherent mobility [would] mean that extending the mobile network
is a better means of connectivity than public access solutions" (http://www.regulateonline.org/content/view/899/76/).
Under this link http://www.gsmlaa.org/en/article.php?id=140
you can find 2 studies from GSM Association Latin America, about the economic
and social impact of mobile telecommunications in Latin
America.

Mobile phones are used to maintain both strong and weak bonds, but the most
significant increase in communication is between relatives and friends in the
same community.

Even poor users do not consider their mobile phone to be a luxury but rather
a necessity. Nearly two-thirds of those interviewed said phone expenses would
be the last (32%) or nearly last (30%) expense to be cut.

58% said the fundamental value was the possibility of being located at any
time and any place.

A relatively small percentage (18%) of lower income users said the main
advantage of having a mobile device was in obtaining work.

The review on the World Dialogue on Regulation for Network
Economics website is interesting. As the title "Private sector perspective on
closing market gaps" suggests, regulators are very suspicious of any research
sponsored by industry groups. But despite the tone of the article, it does
mention a World Bank / Regulatel report "New Models for Universal Access in Latin America" which
highlights some of the problems with “universal access funds.”

On the other hand, the GSMA sponsored studies failed to push what may be the most significant
factor in promoting mobile phone penetration — rampant competition, i.e. more
licenses, more spectrum and more competition. Certainly that’s the formula
that’s worked in India, Pakistan, Nigeria and other countries with more rapidly
growing mobile phone penetration.

All and all, this is a ton of data from a region where I’ve had less
information. Thank you Paula!

One thing remains clear. The need to communicate is human, cutting across
all regions and all cultures and the policies needed to promote mobile phone
adoption are remarkably similar across countries, governments and cultures.

September 30, 2007

I've been following forecasts of mobile phone adoption since the mid-1990s and there is one thing that's completely consistent – future subscriber growth is always underestimated. This is true across every analyst, every firm and every agency I've encountered.

Usually the underestimation takes 2-3 years to become obvious, but here's a graph from Wireless Intelligence (a joint venture of Ovum and the GSMA) which appears in a report Deloitte did for the GSMA entitled SIM Activation Tax and Mobile Telecommunications in Pakistan, which I got from Babar Bhatti (Thank you Babar!).

When I saw this I was immediately suspicious. Why does the green dotted line slack off. If anything the rate of mobile adoption in Pakistan has been accelerating. So I took a quick check of the "Telecom Indicators" on the Pakistan Telecommunication Authority website. The figures from Wireless Intelligence and from the PTA agree up through June 2006, but at that point Wireless Intelligence begins under estimating.

The Wireless Intelligence estimate for 2Q07 appears to be 32 or 33. The actual figures for 2Q07 were 39.94. The Wireless Intelligence estimate for 4Q07 is 37 or 38, but the actual figures for August 31, 2007 were already 42.65.

Why the consistent under estimates?

I don't have a answer but I have an idea, based on 4 or 5 discussions spread over the past decade. Most people (including noted industry analysts) haven't really grokked Moore's law outside of PC speeds. Or more generally, they don't get the power of new ideas and new methods to improve price/performance across the board.

In the specific case of Pakistan, I've heard at least two people (not from Wireless Intelligence) say that mobile phone adoption will slow down as, even with today's low rates, the poorest people will never be able to afford mobile phones. What this misses is, every year the low end mobile phone costs less, and every year the cost per subscriber for new mobile infrastructure goes down. Pakistan is a highly competitive mobile market. When costs go down, subscribers see the benefit fairly rapidly.

Moore's law is rather specific. The economist Paul Romer describes the more general concept:

Every generation has perceived the limits to growth that finite resources and undesirable side effects would pose if no new recipes or ideas were discovered. And every generation has underestimated the potential for finding new recipes and ideas. We consistently fail to grasp how many ideas remain to be discovered. Possibilities do not add up. They multiply.

Globally, it took 20 years to sign up the first billion mobile accounts, less than four years for the second billion and only two years for the third billion. Yes, these are SIM cards not necessarily unique people but, on the other side of the coin, the world's poorest start by sharing a mobile phone. That gets them on the bandwagon, helps them economically while improving their standard of living. So there is another side to the coin as well, mobile phone driven economic growth also helps increase the number of people who can afford the ever less expensive mobile phones.

September 29, 2007

While it's a bit remote from communications, I've touched on mathematical models for financial markets several times (here, here & here), primarily as an outgrowth of my interest in long tails. So I was very happy when Paul Kedrosky pointed to this an excellent survey by Dan diBartolomeo of Northfield Information Services. The last eight slides are full of references – more than I'm likely to track down in a year...

The pointer came in a paper by Deloitte done for, and available from, the GSM Association here. What's interesting is this on page 25-26:

Whilst not considered in this report, a further positive impact of the mobile industry is the additional value add created by the mobile communications industry across the economy. This is, where measured, captured by multiplier that captures expenditure in subsequent rounds. The following figure shows the values of multipliers that have been calculated in other studies.

Not all are easily available on the web, but here are the links for the first four studies:

July 06, 2007

I haven't had new data on African mobile phone usage in some time, so I was pleased to see the July 5th issues of a friend's subscription to Africa & Middle East Telecom Weekly which presented complete mobile subscriber numbers from Blycroft Ltd, by country, for 1Q06 and 1Q07.

In March, I commented on some data from Light Reading which included Nigeria in the top ten countries globally, for absolute mobile subscriber growth numbers. Of course it helps that Nigeria has a fairly large population (135 million) so their rapid subscriber growth rate (> 50%) produces a large absolute number of new subscribers. There is no other country in Africa with a population as large as Nigeria's. The next largest is Egypt (80 million) and then the Democratic Republic of the Congo (66 million). By global standards, Africa has many countries with relatively small populations, so perhaps I can be forgiven for missing the bigger picture.

According to Blycroft estimates, there were 215 million mobile subscribers in Africa at the end of 1Q07, up from 128 million at the end of 1Q06. That's 46% growth year over year and puts African mobile teledensity at 23 subscriptions per 100 people at the end of March. Very impressive, especially that growth rate.

That led me to wonder about growth rates of specific countries in Africa. Here are the top 14 countries with populations over 3 million and teledensity over 20, ranked by their mobile subscriber growth rates for the 12 months ending March 2007, using mobile data from Blycroft and June 2007 population data from the CIA World Factbook.

Libya's population is only 6 million, but at the end of 1Q07 they had 2.7 million mobile subscribers, up 135% from 12 months earlier. Also while Egypt' population is only 60% that of Nigeria, they are ahead of Nigeria in both growth rate and teledensity.

Mobile teledensity for the African continent as a whole, is higher than that of India, at least for now. And, while Africa's mobile growth rate is quite not as high as that of India, it is fair to say, mobile is booming in Africa.

June 26, 2007

My earlier post on the LIRNEasia's study of telecoms use by the very poorest people in Pakistan, India, Sri Lanka, Philippines and Thailand, generated a few public comments and some direct emails. In addition, I've now read through the rest of the public material about this project. Several points emerge.

SMS usage is almost totally a function of the relative cost of a voice call as Dimuthu Ratnadiwakara from the LIRNEasia team comments here.

Access to telephony is better than I thought. I remember saying (back in 1999) that half the people in the world had never made a phone call. Eight years later and things are considerable better. First we are rapidly approaching the point where 50% of the people will own their own mobile phone (sometime in 2008), but more importantly, most people, even at the lowest income levels, already have access to a phone when they need one.

Keeping in touch with family and friends is the number one reason to use a phone, by a large margin! I thought business would be up there, but no, the number one universal human need is to keep in touch with family and friends and that need exceeds all others.

June 25, 2007

More breakfast reading..., of commentary generated during and after the recent TED Global 2007 conference in Arusha, Tanzania. Technorati has pointers of course, but the most prolific blogger is Ethan Zuckerman with almost verbatim transcripts of each session. And, the talk I found most interesting was that by former Nigerian finance minister Ngozi Okonjo-Iweala.

... we’re seeing changes in Africa that we never thought would happen.
We’ve seen annual growth of 5%, in some cases 6-7%, up from 2%.
External debt has been massively reduced. Countries are building up
foreign exchange reserves, shoring up their currencies. Private
investment flows are increasing, remittances to Nigeria are
skyrocketing, and there’s a net inflow of capital.

But Africa needs jobs. 62% of Africa’s population is under 24. We
have to figure out how to make these people productive. Nigeria is now
building an opinion research organization, a way of listening to
citizen voices, which she notes is a rare thing on the continent. The
top issue in every survey? Jobs.

Then after a heart felt story of saving her sister's life with help from a clinic sponsored by foreign aid,

Okonjo-Iweala tells us she doesn’t believe aid, even aid to save lives,
in the sole answer. We have to use it well. Why has southern Spain
developed? On the back of aid which was provided to build road and
infrastructure. Ireland is one of the fastest growing economies in the
world - they used aid to build infrastructure to build an information
society. “They didn’t say no to aid - but if they can build
infrastructure in Spain, why do they refuse to build the same
infrastructure in our countries?”

Finally,

The Chinese are so popular in Africa, she tells us, because they don’t shy away from infrastructure.

Thank you Ethan Zuckerman. I wish I could have been there. And, I'll definitely follow the future career of Ngozi Okonjo-Iweala.

June 24, 2007

This morning over breakfast I was reading commentary on TED Global 2007 and development in Africa, while my wife was reading a Guardian Weekly article about Nicholas Negroponte's reaction to Intel's Classmate computer. An interesting overlap emerged.

First, the TED Global 2007 commentary exposed the extent to which the west, i.e. the US and EU, treat Africa as a disaster area to be "aided." That's a very different from say, the Chinese, who are going to Africa to do business. Although not part of the TED blogs, Howard French says it best as he summarizes a flight between Africa and Beijing, full of Chinese businessmen, and then recalls similar flights between the US and Africa:

...the passengers one finds aboard the few existing flights linking the
United States to Africa make for an interesting comparison with my
Chinese fellow travelers. Yes, there is a smattering of business people
and of tourists. But the Americans who travel to Africa tend to be aid
workers of one kind or another: officials of the U.S. government and of
the international financial institutions, like the World Bank, and the
army of well-paid consultants and contractors that they deploy. They
are also relief workers and missionaries and Peace Corps volunteers,
and academics doing research.

There is much to be gleaned from the contrast here. Chinese people
today look at Africa and see opportunity, promise and a fertile field
upon which their energies, mercantile and otherwise, can be given full
play. Too often, the West looks at Africa and sees a problematic pupil,
a sickly patient, and a zone of pestilence, where failure looms in the
air like a curse.

As I was reading this, my wife commented on the Guardian article (essentially the same content as this BBC article), surprised that Nicholas Negroponte was upset when Intel introduced its own low cost computer for the developing world, in competition with the One Laptop per Child initiative. Surely competing computers can only be good for children in developing countries?? But apparently Intel is bucking the "father knows best," we have to give them aid, approach still prevalent in much of the west.

I don't have a lot of Africa experience, but NMS Communications does business in Africa, selling AccessGate RAN backhaul optimizers for rural cellsites and MyCaller ringback tone systems for personalization services in rapid growth markets as diverse as South Africa and Nigeria.

There is plenty of business going on in Africa. And ultimately, it's Africans doing business that will solve the problems that decades of aid have failed to solve. Hopefully more western companies will join the Chinese in doing business with, and fostering business in, Africa (and other parts of the developing world).

June 23, 2007

It's widelyknown that SMS usage in the Philippines exceeds that of any other country, but I haven't noticed a concise explanation of what's going on. The fact that SMS started out as a free service is occasionally mentioned, but that was long ago — as SMS adoption soared, charges were rapidly introduced.

Of course there are multiple contributing factors, but the perceived cost of voice calls is surely one of the most important. Yes, there are issues of literacy, local language interfaces and other effects, but when considering poor people at the bottom of the economic ladder, cost seems paramount.

June 17, 2007

While I was in Asia my wife picked up an 1860 original leather bound copy of "The Story of the Life of George Stephenson" by Samuel Smiles. If you've never heard of George Stephenson, he's known for The Stockton and Darlington Railway which opened on the 27th of September 1825, The Liverpool and Manchester Railway which opened on the 15th of September 1830 and, with his son Robert Stephenson, for the engine "The Rocket" which won the first major locomotive contest in October 1830, also setting a speed record (29 mile per hour).

The Stockton and Darlington was designed to carry coal to a port at Stockton-on-Tees. To quote Smiles,

At first passengers were not thought of; and it was only while the works were in progress that the starting of a passenger coach was seriously contemplated. The number of persons traveling between the two towns was small and it was not known whether these would risk their persons upon an iron road. <...>

No sooner did the coal and merchandise trains begin to run regularly upon the line than new business relations sprang up between Stockton and Darlington and there were many more persons who found occasion to travel between the two towns — merchandise and mineral traffic invariably stimulating, if not calling into existence, an entirely new traffic in passengers.

In 1829 the line was extended to new docks five miles down the river where a new town (Middlesborough) grew from nothing to more than 6000 residents within ten years.

For the much more ambitious Liverpool and Manchester, the promoters based their calculations on heavy merchandise traffic (coal, cotton and timber) but also thought that they might be able to capture half of the 400 people per day carried by coaches between the two cities. Again quoting Smiles,

But the railway was scarcely open before it carried on an average about 1200 passengers per day.

These were heady results that lead in due course to waves of investment (peaking in 1836-37 and in 1846) producing bubbles not unlike our Internet bubble. But despite investment bubbles, and busts, traffic continued to grow throughout the 19th century, literally transforming society. The parallels with the Internet are interesting. Andrew Odlyzko tells the investments part of the story in section 4 of this article.

What the quotes from Smiles should suggest is we're unlikely to guess what form future advances based on the Internet will take. Broadband Internet access is important for it's option value, not for the applications we run today.

Put another way, while I love railroads, the Internet's long term benefit for humanity is more significant — likely to rank up there with the introductions of speech, writing and the printing press.

June 11, 2007

Mobile Pundit pointed out this Economic Times article on a TRAI study of the first six months experience with “Lifetime prepaid” services in India. Service adoption has been different than expected but, with hindsight :-), it makes perfect sense to me.

The original premise for lifetime prepaid was that poor people would be able to get a phone with which they could receive calls even if they couldn’t afford to make outgoing calls. Since India is a caller-pays country, a laundry man, a paper recycler, or any other small time entrepreneur, would be able to advertise a phone number and receive calls from customers.

But the TRAI study found subscribers to Lifetime Prepaid services are not much different than any other subscriber. 72% recharge their phones every month and ARPU for lifetime prepaid subscribers is Rs 218 (~US$5.37) versus RS 261 (~US$6.43) for normal prepaid subscribers. Yes, lifetime prepaid has tapped new customers, but it’s appeal is much broader than just the poor. And this despite the fact that lifetime prepaid costs slightly more per minute for outgoing calls (Re.0.80 vs. Re.0.77) than regular prepaid.

The appeal here is the reduction in uncertainty. It’s well established that people will pay extra to not have to worry about things. That’s the reason monthly subscribers in the US buy bundles of minutes for much more than their actual monthly costs would be if they paid by the minute.

With lifetime prepaid you know you will keep the same phone number, even if something happened and you couldn’t afford to recharge your phone for a while. If you’re middle class and want your driver and other servants to be reachable, here’s the perfect plan — you can get them phones and not worry about maintaining their service for them. And if you live outside of India but want a phone for your twice yearly visits, what better way? At every economic level, people want to reduce hassles in their lives and are willing to pay a bit extra for the privilege.

May 19, 2007

I saw a Guardian Weekly review of The Black Swan by Nassim Nicholas Taleb which mentioned Taleb's reverence of Mandelbrot, thus leading me to purchase and read the book — ok, I read some, I skimmed some. :)

The central thesis is that wildly unexpected events occur, in finance and elsewhere, more frequently than suggested by a Gaussian or Normal distribution. In fact markets and many other phenomena are better described by power laws. Both Gaussian and Power Law distributions have long tails, but the tail of a power law distribution is fatter further out. That's what makes sales of books and other media on "the long tail" so profitable for Amazon.

Here's a quote from the author:

The
Black Swan is about these unexpected events that end up controlling our
lives, the world, the economy, history, everything. Before they happen
we consider them close to impossible; after they happen we think that
they were predictable and partake of a larger scheme. They are rare,
but their impact is monstrous. My main problem is: Why we don't know
that these events play such a large role. Why are we blind to them?

It's a book of anecdotes and we've all heard "the plural of anecdote is not data" but while a cute phrase, it's a faulty argument and furthermore there is data for financial markets and long tail markets. For an accessible version of the mathematics, read the Mandelbrot book I discussed in this post. But as a book of anecdotes, The Black Swan is a pleasant read and Taleb's primary point is well taken.

It appears that's how long it's taken for Jensen's study to make it's way from a conference presentation (here are the original slides) to publication in a peer-reviewed journal, i.e. “The Digital Provide: Information (technology), market performance and welfare
in the South Indian fisheries sector”, by Robert Jensen, to be published in the
Quarterly Journal of Economics, August 2007.

Not to boast, but the graphics in my original post beat the text in the Economist article although that text is good:

...starting in 1997 mobile phones were introduced in Kerala. Since
coverage spread gradually, this provided an ideal way to gauge the
effect of mobile phones on the fishermen's behaviour, the price of
fish, and the amount of waste.

As phone coverage spread between 1997 and 2000, fishermen started to
buy phones and use them to call coastal markets while still at sea.
(The area of coverage reaches 20-25km off the coast.) Instead of
selling their fish at beach auctions, the fishermen would call around
to find the best price. Dividing the coast into three regions, Mr
Jensen found that the proportion of fishermen who ventured beyond their
home markets to sell their catches jumped from zero to around 35% as
soon as coverage became available in each region. At that point, no
fish were wasted and the variation in prices fell dramatically.

Missing from the Economist article were some significant results Jensen provided in his January 2006 talk. At that time, he concluded by pointing out other impacts, beyond prices and reduced waste of fish. The advent of cellphones also led to a 6% increase in
educational enrollments and a 5% increase in the probability of using
of healthcare when sick. All this with no government programs and no new
funding of existing programs.

May 10, 2007

More specifically, an analysis of word frequencies done on 29,213,800 words, taken from TV and Movie scripts and transcripts that were available on the Internet in February 2006, shows that just 63 words account for 50% of the 29,213,800 words collected.

I'm a fan of Chris Anderson, have read his article, skimmed his book and I have commented on the subject before. Kilkki's article is less anecdotal and more mathematical grounded than Chris Anderson (without being inaccessible).

April 01, 2007

While reading a friend's copy of Blycroft's latest Africa & Middle East Telecom Week (subscription) I couldn't help noticing substantial growth (25%-26% in 4Q06) in mobile subscribers in two small West African nations, the Republic of Guinea and Sierra Leone. I've never been to either country. Before this, I'd only heard of Guinea as one of the most corrupt nations on earth and I knew of Sierra Leone only because of their extended civil war. Indeed, Transparency International ranks Guinea among the most corrupt countries. And, while the civil war has ended, Sierra Leone remains one of the poorer countries, even in Africa, with a purchase price adjusted (PPP) per capita GDP of $900 per year. But each has seen substantial mobile phone adoption in 2006 and each has increasing mobile competition and thus the prospect of even more adoption in 2007 & beyond. Here's the data from Blycroft.

1Q06

2Q06

3Q06

4Q06

Chg Q4/Q3

Republic of Guinea

Intercel Holdings

6,800

6,800

6,800

6,825

0.4%

Investcom Guinea

0

115,000

201,000

302,017

50.3%

Spacetel

20,000

20,000

20,000

19,421

-2.9%

Sotelgui

168,437

269,000

329,338

375,411

14.0%

Sierra Leone

Celtel
Sierra Leone

190,000

195,000

202,000

243,000

20.3%

Comium

60,000

90,000

120,000

165,000

37.5%

Datatel

11,370

14,000

15,578

17,156

10.1%

Africell SL

40,000

45,000

50,000

55,000

10.0%

Millicom Sierra Leone

27,651

28,771

28,961

42,055

45.2%

Mobile adoption in Guinea in 2006 was entirely driven by the introduction of one new competitor, Areeba, owned by Lebanese Investcom which in turn has been acquired by MTN. Teledensity reached 7.3 (per 100 population) at the end of 2006. The good news for 2007 and beyond is that Sonatel (42% owned by France Telecom, i.e. Orange) has acquired the mobile license of Spacetel and plans to have a network operational before the end of 2007. Even if Guinea remains corrupt, an increase in the number of viable competitors is fairly certain to lead to increased mobile phone adoption.

While quite poor and still recovering from decades of civil war, Sierra Leone has had mobile phone competition since 2004 and is now up to five competitors and a teledensity of 8.7.

Both countries have problems but these increasingly competitive mobile markets bode well for the spread of mobile phones and, as I've commented before, mobile phones lead to direct economic benefits for individuals.

February 20, 2007

There's plenty of anecdotes about mobile phones helping poor people in emerging markets. There's also evidence that I've written aboutseveral times in the past. Here's another piece of evidence.

Robert Jensen studied the adoption of cellphones by fishermen along the coast of India's Kerala state between 1997 and 2001 measuring the resulting impact on fish markets, prices, incomes and waste. Cellphone service became available in three distinct stages (January 1997, July 1998 and May 2000) for three distinct regions south to north along the coast. This helped Jensen separate cell phone adoption from other effects.

The short summary — cellphones improve information flow, which makes markets work better and results in quantifiable benefits for all parties. Waste (~6% of the fish were unsold before cell phones) has been eliminated. Fishermen profits are up 8% and consumer prices are down 4%, directly driving a 20 rupee/person/month consumer surplus, the equivalent of a 2% increase in per-capita GDP from this one market alone.

Here's are plots of daily fish prices at coastal markets spaced roughly 10 Km apart. The three graphs cover markets in the three regions and give a good sense of both the impact and the speed of the transition.

Jensen concludes his talk by pointing out other impacts, beyond the price of fish. The advent of cellphones also led to a 6% increase in educational enrollments and a 5% increase in the probability of using of healthcare when sick. All this with no government programs, no new funding requirements.

January 20, 2007

But today, through a recent blog post by the data geeks at Swivel, I got a pointer to a video of Hans Rosling presenting his awesome visualizations at the February 2006 TED conference. (It's 20 minutes, but well worth the time!).

Apparently after Hans Rosling's presentation at TED, Gapminder was invited to do a longer presentation at Google. Then Google stepped up to host the Gapminder site (and presumably to sponsor their work).

By the way, if you are interested in data but not familiar with Swivel, check them out. I'm looking forward to Swivel becoming the Flickr and YouTube of data. All they need is some of Hans Rosling's technology. :-)

December 15, 2006

I've written before on the economic benefits of investment
in telecom, including a summary article for the Fall 2006 issue of At Your Service, where I concluded (emphasis added for today's discussion):

Investment in telecom is more productive than investment in other kinds of infrastructure. The impact is particularly noticeable in developing nations.

None of this is to downplay the developing world’s need for clean water, public health initiatives, and access to medical care, but if there is one area where capital investment provides outsized returns for individuals and nations, it is mobile telecom. And telecom is one area where developing nations can easily attract outside capital with regulatory policies that favor open access and competition. Best of all, mobile handsets work without a permanent electricity supply, people can use them without learning to read or write, and technical advances continuously drive down costs.

Today, while catching up on back reading, I saw this from Indian economist Ajay Shah, based on data from India's most recent National Family Health Survey, NFHS-3, which is in his words:

... the best household survey in India - it's the gold standard against which all surveys compare themselves. The first survey was conducted in 1992-93, the second in 1998-99 and the third in 2005-06.

From this survey, and confirmed by other sources as discussed here and here, it's clear the performance of India's public health services has been terrible, but health and fertility outcomes are tremendously better. Again from Ajay (emphasis mine):

What is going on? I think the main insight is that the health of the people reflects lots of things. It reflects nutrition, sanitation, knowledge, private purchases of health services and the outcomes delivered by the public health system. It is by no means controlled exclusively by the public health system; when people talk about improvements to the public health system as the only channel to having a healthier population, this is flat wrong. When people get richer, they buy better food, better sanitation and cleanliness, more knowledge (e.g. education within the family), and services of private doctors / hospitals. India has been experiencing powerful economic growth, which is trickling down to poor people. So even though the public health system is doing badly, health outcomes have improved, amongst poor people.

So, while I worry about clean water and access to medical care in developing countries, perhaps my chosen career, i.e. telecom, is contributing more to these issues than I'd thought.

October 31, 2006

Over the past 18 months, I've written a number of posts on the economic benefits of investments in telecom. Recently, I pulled together that information in a single article which was just published in the Fall 2006 issue of At Your Service.

September 25, 2006

A major obstacle to the spread of new telecom services in under-developed countries is government dependence on revenues from the existing telecom monopoly. ITU and World Bank advisers promise that if you remove restrictions and reduce taxes, the growing telecom industry will yield more total tax revenue while also fostering economic growth (thus increasing general tax revenues). But that's a big risk to take. How do you pay government employee salaries while waiting for the benefits of growth to kick in?

This article in the Pakistani Business Recorder gives specific tax rates, teledensity growth figures and resulting tax revenues which may help more backward governments to take the leap.

ActivationCharges

SubscriberGrowth

GST/ExciseRevenues

ActivationRevenues

2003-04

Rs. 2000

Rs. 5.1B

Rs. 4.1B

2004-05

Rs. 1000

154%

Rs. 9.9B

Rs. 7.6B

2005-06

Rs. 500

169%

Rs. 18.8B

Rs. 11.4B

Certainly Pakistan has had no lag in revenue gains as they have cut activation fees. Considering all the other benefits that telecom is bringing to Pakistan, it's too bad they are only discussing a further cut to RS. 250. The best approach for poor people in Pakistan would be to completely eliminate activation fees. Either way, the government is certain to gain in total revenue.

September 22, 2006

It is now well established that investments in telecom are the most productive of any investments a developing economy can attract — better at increasing per-capita GDP than investments in roads, electricity or even education. So I'm always interested in better understanding what a developing country can do to attrack investment in telecom. The answer is complex, but a few things are clear. Regarding telecom directly: increase competition, reduce restrictions on foreign direct
investment (FDI) and reduce taxes on telecom, including less direct costs like spectrum fees and service activation taxes. But also an issue is a business climate that recognizes property rights and minimizes corruption. Just how important is that?

I've seen good data to support the benefits of competition, the good results of reducing restrictions on foreign investment (i.e. on allowing foreign ownership of telecom companies) and the positive gains from reducing telecom taxes. I have been less confident about the issue of good government as China appears to attract enormous flows of FDI despite its government getting consistently bad marks in the western press. What's actually going on?

The World Bank has produced a draft volume Dancing with Giants: China, India and the global economy,
edited by L. Alan Winters and Shahid Yusuf. Six areas are covered:
global industrial geography, competing with giants, international
financial integration, energy and emissions, regional variations in
growth within the giants, and governance.

Groundwork towards
this was done in the form of 21 background papers. Drafts of the book,
and the 21 background papers, have been placed on the web. It is good work.

Their conclusion in response to the question: Is too much FDI flowing into China?

Probably not.

We have shown that, within China, inward FDI flows disproportionately into provinces with less corrupt governments and governments that better protect private property rights. We estimate a cross-country FDI model, without China, that explains inward FDI using measures of the strength of constraints on executive power as well as more general measures of government quality and track record in fostering growth and a set of standard controls. This model predicts FDI flow into China with prediction errors similar to those for other countries with similar levels of institutional development...

There is indeed an enormous FDI flow into China, but given China’s size and growth track record, this flow is not far from what would be expected for a country at China’s level of institutional development.

So much as we may dislike government repression, it appears the critical issue for raising people's standard of living is protection for property rights and minimizing government corruption.

In any event, there's a wealth of economic information in these working papers. I'm grateful to Ajay for pointing them out.